If anything was evidence that Apple’s iPod is ready to be the de-facto digital music device, the latest survey of teens by financial research firm Piper Jaffray should be it. Of the 606 teens surveyed (54 percent male, 46 percent female), those planning to buy a player all responded they were considering Apple’s iconic device.

About one out of every five teens are planning to buy a new music player in the next 12 months, down from 34 percent in the fall survey. Of that group, 100% say an iPod.

For whatever reason, Zune’s share has collapsed — probably due to the fact the players have gone without any update for quite awhile. In the fall, 15 percent said they were considering a Zune. If this is true, Microsoft may find itself being forced out of the digital music player market as the youth is what drives this industry.

There really isn’t much untapped potential here either: 92 percent of teens own a player, up from 87 percent in the last survey. So even if this is exaggerated, the growth potential is slipping away for Microsoft — I’ve often heard them argue about the untapped market as its salvation.

I just can’t see with the increasing amount of negative data for Zune how it is worthwhile for the company to stay in the market. We are hearing that the wagons are circling in Redmond and talks are ongoing with partners on the next Zune model, which should come out in the fall if what we are hearing is correct.

14 Comments For This Post

“I just can’t see with the increasing amount of negative data for Zune how it is worthwhile for the company to stay in the market.”

You mean the sales data, or is there a technical issue I missed?

Doesn’t matter–MSFT isn’t about making money, it’s about staking out territory like a dog. The Xbox has put them–what– 20 Billion in the red– yet there’s no sign they are planning to drop that, either. Last I checked, you can also still buy Win Mobile phones. It’s all about territory.

“Doesn’t matter–MSFT isn’t about making money, it’s about staking out territory like a dog. The Xbox has put them–what– 20 Billion in the red– yet there’s no sign they are planning to drop that, either.”

Well, I think the Xbox will always keep that division profitable. The 360 really put Microsoft in a great position in the video game space. I don’t see how the Zune ever breaks out of its rut. The “social” just isn’t cutting it, don’t you think?

So for “Ipod competitors” we have to read Zune? Because I dont see any reason for Creative to exit the market.

Its kind of hard for a product synonymous with the category not to be considered by a buyer in that category. 100% of people looking at a “tivo” consider Tivo. 100% of people in the store looking at “jello” cast their eyes on boxes of Jello- I think you can read too much into everyone who wants an mp2/4 player at least looking at the Ipod.

“There really isn’t much untapped potential here either: 92 percent of teens own a player, up from 87 percent in the last survey.”

Nice thing about teens is there is a new crop every year.

Three points:
– for those companies who are looking for download revenue in addition to a hardware sale, the teen market may not be the most lucrative.
– What is the realistic MP3 player life anyway? Just because you have a player, doesnt mean that you are permanently out of the market.
– the 100% of teens who are considering an Ipod may be price insensitive since they are hoping to use their parents’ money. The parents may not be so insensitive.

Actually, MS first turned a profit in the EDD segment, Entertainment and Devices Division, in the late Summer of 07. However, they had a loss in the early Summer of 08, so, they haven’t ALWAYS been turning a profit since then. Here are the numbers:

In other words, a relatively small operating profit, pre-tax, that hardly makes a dent in their deficit in that division, and surprisingly, doesn’t seem to be growing in profitability. I mean, wasn’t the whole point to gain market share, and then start to turn a profit once the consoles were out there and people were buying the high-margin games?

And, MS’s financials have always been a bit suspicious, since they have a cost segment, that is totally unallocated to any income centers. This division, could easily be a way for them to fudge the numbers and show individual divisions are turning a profit. How big is this cost center? Well, it loses between $1.3B to $1.5B a quarter. That’s a big number that can easily turn a Xbox division loss into a small gain. Not saying that they do, but MS’s way of accounting is a bit strange.

Not to mention that they strangely lump in MacBU and Win app development and marketing costs into Entertainment. I know they turn a profit from the MacBU, perhaps, another way to pump up the EDD numbers.

The Xbox Division has made quarterly profits but since its inception, it is running about $15 BILLION in the red. Basically MS would have to sell 1 BILLION XBOX Consoles to break even … MS also makes NO MONEY on the internet – as Fortune pointed out last year – the division was $700 million in the red. AOL made money last year & last quarter – but not MS on the internet. What does that tell you? Ms also makes no money with Zunes. And yet, Steve Ballmer still has a job.

I don’t think time will ever run out for iPod competitors. Reason being, is that there are too many consumers who find iPods to be second rate players.

Teens are also a bad measuring stick. Most teens are not smart shoppers, who do a lot research into such a product. Most of them just want an iPod either because they don’t know anything about the competition, or they just want to be hip by owning the most marketed and well known MP3 player.

Raiders757 said:
“Most teens are not smart shoppers, who do a lot research into such a product.”

I think that is not relevant. The point is that a most buyers in this category probably don’t do a lot of technical research. I’ll gladly confess that I don’t understand this kind of marketing, but it appears Apple does. Most people buying an iPod don’t check the clock rate of the CPU, the technology of the LCD or other such minutia.

Actually, if Microsoft took the same tactic with their Zune as with their general Windows ads of late (Apple products are over-priced and more about social cache) and followed up by actually dropping the prices of the models to at least $50 below iPods, then they would have a good comparison point feature-wise with a lower price-point. Back this up with standard pricing of music and shows in the Marketplace (which they have, but unfortunately it is under the “Points” system…ugh) versus the new tiered pricing within iTunes, and they have a really solid argument in this economy. I think a consistent PR message from Microsoft across their product line right now would only benefit them in the short term, and thereby also doing so in the long run.

I offer this as a Zune owner/user who loves his device and, frankly, wishes it could gain more marketshare against Apple. The typical response I get from people when I mention my Zune is a confused “What is that?”, whereas the typical response I get when someone sees my Zune is an excited, “What is THAT?!” There is certainly room here to grow, if Microsoft remains savvy about marketing the product (they have made great strides reaching Latino and African-American audiences) and stick with it.

What nonsense, written by somebody who clearly doesn’t understand what the Zune brand includes. (The device by the same name was just one experiment.)

We don’t even know what the plans are for Zune on Nokia. But all available evidence shows Zune is on the up. Zune is taking an increasing bite out of iTunes’ market share. Is the author unaware of the facts concerning Zune?